7.1-3 Leasesrevised

7.1-3 Leasesrevised - ACIS 211 Company Accounting 2009...

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ACIS 211 Company Accounting 2009 Leases Bill Foster Room 619 bill.foster@canterbury.ac.nz

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Tutorial exercises: week commencing 14 September Deegan and Samkin question 11.4 Alfredson P 14-5 (EE and OR) journal entries for all years In your own time: week commencing 14 September Deegan and Samkin questions 11.2;11.3; 11.6; 11.10; 11.12 (Use Excel’s IRR function to compute the implicit rate);
Overview Lecture Outline I. Lessee a. Lease term b. Bargain Purchase Option (BPO) c. Rate for PV of MLP-EE d. How the OR sets the rents e. EE’s incremental borrowing rate f. Definition of MLP-EE g. Structure of EE’s entries – finance lease payments at the beginning

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h. Structure of EE’s entries – finance lease payments at the end i. How to convert an ordinary annuity (in arrears) [end-of- period] factor to an annuity due factor [beginning-of- period] j. In class problem #1 – EE finance lease- payments at the end k. In class problem #2 – EE finance lease- payments at the beginning l. Operating leases – EE
II. Lessors a. Direct financing leases i. Structure of the entry at inception—direct finance lease ii. Structure of direct finance entries after inception -- payments at the beginning iii. Structure of direct finance entries after inception -- payments at the end iv. In class problem #3 – OR direct finance lease- payments at the end

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b. Sales type leases i. Unguaranteed residuals ii. In class problem #4 – OR sales-type lease- Deegan and Samkin end of chapter exercise-- corrected and extended III. Initial direct costs IV. Lease incentives V. Leases involving land and buildings VI. Sale and leaseback transactions a. In class problem #5 – sale and leaseback EE finance lease VII. Disclosure requirements of NZ IAS 17
Reading NZ IAS 17 Leases Deegan and Samkin 4 th edition Chapter 11 Alfredson 2007 Ch 14

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A lease is an agreement whereby the lessor (OR) conveys to the lessee (EE) the right to use an asset for an agreed period of time in return for a payment or series of payments
The lessee has the right to use the asset Often the lessee does not have title to the asset (legal ownership) but is able to control the asset The accounting specified by NZ IAS 17 looks at the economic substance of the transaction rather than the legal form Specifically, lessees are required to recognise, at the inception of a lease, a leased asset and a related liability for certain leases

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I. Lessee A lessee (EE) can either have finance lease or an operating lease If a lease transfers substantially all of the risks and rewards of ownership from the OR to the EE, it is classified as a finance lease
Examples of risks associated with ownership are: obsolescence, a decline in the residual value, and a loss on the eventual sale of the asset Examples of rewards associated with ownership include: use of the asset profitably, increases in the residual value, and gains on the eventual sale of the asset A lease that is not a finance lease is an operating lease

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Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the
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This note was uploaded on 12/23/2009 for the course BCOM ACIS 211 taught by Professor Susanwild during the Spring '09 term at Canterbury.

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7.1-3 Leasesrevised - ACIS 211 Company Accounting 2009...

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